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80 In a digital world, can 
the country's daily newspa- 
pers keep the lucrative want 
ad business to themselves? 


Without classified advertising, newspapers would 
be in desperate straits. Can they keep their grip on 
the business as it moves from newsprint to modem? 

Help wanted: 
on-line publisher 

By David C. Churbuck 

LET'S SAY you just moved to Chicago 
and want an apartment. You pay 
$1.50 for a Sunday Chicago Tribune 
and paw through its 2-pound classi- 
fied section. Two hours later you have 
circled 32 ads diat look promising — 2 
bedrooms, no more than $1,000 a 
month, within 3 miles of your office. 

What a waste — of your time, of 
newsprint and of fuel to schlepp the 
classified section all over town, mostly 
to subscribers who don't even glance 
at the classifieds because they aren't in 
the market for its wares. How much 
better it would be to sort the apart- 
ment listings on a computer attached 
to an on-line service. 

But the Tribune Co., publisher of 
die Chicago paper, needs those classi- 
fieds. These ads brought in $385 
million last year for the Trib and the 
company's other dailies. That's a lot 
of revenue for a newspaper group 
whose operating income (profits be- 
fore depreciation, interest and taxes) 
was only $359 million. 

Put it this way: Minus classifieds, 
the Chicago Tribune would be a pale 
image of what it is today. Most metro- 
politan newspapers are in the same 
boat and so are many weeklies. Classi- 
fied advertising hauled in $12.5 bil- 
lion for daily newspapers last year, 
according to Miles Groves, chief 
economist of the Newspaper Associa- 
tion of America. That represented 
37% of their total revenue and a 12% 
increase over classified revenue the 
year before. 

Newspaper publishers are well 
aware of the threat. As advertising 
goes digital, they want to preserve the 
business for themselves. Tribune Co., 

which doesn't relish buying maybe 
50,000 tons a year of paper on which 
to print its classifieds, publishes classi- 
fieds on America Online and its help 
wanted section on die Internet. 

But can the country's 1,538 dailies 
keep the lucrative want ad business to 
themselves? These papers, almost all 
of them de facto monopolies, can 
readily fend oft" competitors in the 
print medium. That's because the 
cost of entry to a potential invader — 
replicating the fleet of delivery trucks 
and newsstands, for instance — is just 
too high. Not so electronic classifieds. 

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Newspaper killers? 

From aviation to yachting, dating to 
jobs, the Internet's World Wide Web has 
embraced classified advertising as one 
vehicle for making money on-line. 

Any enterprising fellow can get into 
this business. 

Here's one: Gary Kremen, 31, 
principal owner of Electric Classi- 
fieds, Inc. in San Francisco. With the 
help of S 1.7 million in venture capital 
from outsiders — including Ronald 
Posner, a software industry veteran 

(Forbes, Apr. 29, 1991)— Kremen 
has opened a classified advertising 
business on the Internet's World 
Wide Web. So far this two-month-old 
service is limited to lonely heart ads 
( and has 
only 3,000 listings. But this is just a 
warm-up. Next year Kremen will ex- 
pand into real estate and used-car ads. 

Electric Classifieds is priced to at- 
tract business. You don't pay to post 
ads or to read them. If you want to ask 
an advertiser for a date, you will pay 
$5 to $8 to send an E-mail message to 
that person. The rental and car ads 
will work the same way: The person 
responding to the ad will pay to get in 
touch widi the advertiser. 

The digital world knows no geo- 
graphic bounds. It happens that al- 
most all of Kremcn's business to date 
has come from the San Francisco area, 
but there's no reason he can't take ads 
just as easily from Houston or Chica- 
go. Viewers can electronically screen 
ads, if they want, in order to see only 
those from nearby. Internet connec- 
tions across the country arc just as 
cheap as connections across town. 

It doesn't cost much to run an on- 
line service like this. Software captures 
the necessary data from advertisers; 
software dispenses the information to 


viewers, who can sort or screen it just 
about any way they want. 

Don't count the newspaper out yet. 
The medium has faced technological 
threats before. Newspaper publishers 
saw the value in broadcast licenses 
decades ago and snapped many of 
them up. Newspapers were willing to 
pour tens of millions of dollars into 
videotex, a sort of on-line sendee that 
was before its time and failed. 

The newspaper industry was also, 
beginning in the 1970s, the first big 
user of networked word processors. 


Forbes n July 3, 1995 

Electric Classified's Gary Kremen 

His system sorts ads according to the reader's location and preferences. 

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Welcome lo WorldPort Classified Advertising! 

Mm 1 

Modem descendants of tliose early 
data processing systems are now used 
to produce die classifieds diat go into 
today's papers. 

Responding to the obvious threats 
to their revenue base, newspapers not 
only are launching their own on-line 
efforts, but also are banding together. 
This spring, nine big newspaper 
chains formed the New Century Net- 
work to establish a common technol- 
ogy for sharing stories and adverdsing 
over the Internet. 

Says Eric Meyer, who runs an on- 

line journal about on-line media 
(http: //, ''News- 
papers have a tremendous advantage, 
if they don't blow it, and that's the 
infrastructure to take die ads, run the 
ads and bill for the ads." 

One thing is certain, however: 
Even if the newspapers do hang on to 
the business, it will become less profit- 
able lor them, especially if they must 
compete widi vendors who charge for 
the ads only on a per-inquiry basis. 

Here's another threat to newspa- 
pers: The big winners in on-line classi- 

fieds may be neither newspapers nor 
tiny upstarts. They may be media 
giants with name recognition and 
software or communication skills. An 
mci or a Microsoft could emerge with 
a big slice of that $12.5 billion pic. 

Bottom line: Newspaper stocks, 
despite Warren Buffett's well-known 
fondness for them, are at best a hold. 
Stocks of newsprint producers, too, 
are endangered: No matter who cap- 
tures the on-line medium, the days of 
the 2 -pound classified section arc 
numbered. HH 

Forbes n July 3, 1995